@ClementsMoney Hump Day Help – Reassess Your Emergency Fund

by | 15Aug2018 | Hump Day Help | 2 comments

Welcome to the Hump Day Help. Each Wednesday we take some advice from Jonathan Clements‘ blog Humble Dollar and “militarize” it for you. Jonathan Clements was a longtime personal finance columnist for The Wall Street Journal, and he offers great advice at the best price you can get…free. Here is this week’s Hump Day Help:


REASSESS YOUR EMERGENCY FUND. Experts often recommend keeping three-to-six months of living expenses as an emergency fund. Just left a secure job to strike out on your own? You should probably hold more cash. Just retired? Now that losing your job is no longer a risk, you might shrink your emergency fund—and perhaps shutter it entirely.


There are a few things to take into account when it comes to your emergency fund. First, it is for real emergencies. It is not for when your Playstation 4 breaks, but for when you have a significant and unexpected expense. Things that would qualify would include an insurance claim that requires you pay a substantial deductible (like an auto accident), medical expenses, legal expenses, or loss of a job that reduces your income.

Second, you may have a larger emergency fund than you realize. You can withdraw any contributions (not earnings) you’ve made to a Roth IRA without tax or penalty. You can sell any taxable investments you’ve made. You’d have to pay taxes on any capital gains you have, but if it really is an emergency this might be a reasonable way to deal with it. For me, this is a high six figure amount.

You can also use credit. If you have home equity, you may have already set up a home equity line of credit you could tap. Finally, you have credit cards you could use to fund any emergencies on a short-term basis. We wouldn’t recommend that you pay credit card interest because it is likely very high, but if it is truly an emergency this is always an option.

Third, if you are in the military you have a few significant advantages others don’t have. While you could always get yourself in trouble and get kicked out, you probably won’t lose your job. Being a TRICARE beneficiary limits the amount of out-of-pocket medical expenses you’d be exposed to. Both of these may limit the amount of emergency money you need to keep in reserve. For me, what I call my “emergency fund” is really just extra money I keep accessible for home improvements, automobile purchases, and vacations.

If you’d like to read our take on the emergency fund, go to Step 3 of our Steps to Financial Security – Establish an Emergency Fund.


  1. Jake

    Of the options for access to emergency funds from investments, if given only the following two options, would you recommend withdrawing from Roth IRA contributions or taking a loan out of TSP and paying it back within 3-6 months? It seems like the TSP has the payback option whereas with the Roth, you are out of the withdrawal amount. However, by temporarily borrowing from the TSP, one loses some steam in compound interest. This may not be a factor in a down or sideways trading market, but may dampen gains in an uptrend. What are your thoughts?

    • Still In

      I think I’d take the TSP loan if I could pay it back quickly. While you aren’t participating in any market gains during that 3-6 months, you are paying yourself interest. As you mention, if you take the TSP contributions out you can’t put them back, and a Roth IRA is probably my favorite type of account since it is tax free and it has no required minimum distributions. The TSP does.


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